INSIGHT-Pope to review Vatican bureaucracy, scandal-ridden bank

* Pope could set up committee to advise on changes in
finance structure

By Philip Pullella

VATICAN CITY, April 2 Pope Francis, who has said
he wants the Catholic Church to be a model of austerity and
honesty, could restructure or even close the Vatican's
scandal-ridden bank as part of a broad review of its troubled
bureaucracy, Vatican sources say.

Francis, who inherited a Church mired in scandals over
priests' sexual abuse of children and the leak of confidential
documents alleging corruption and infighting in the Vatican's
central administration, is mulling his options as he sets the
tone for a reformed and humbler Holy See.

One of the tests of his papacy will be what he does about
the bank which has regularly damaged the Vatican's image over
three decades and faces growing calls for reform.

Last year a European anti-money laundering body found that
the bank - formally called the Institute for Works of Religion
and known by the Italian acronym IOR - had failed to meet some
of its standards on fighting financial crimes.

"Certainly if the pope wants to, he can close the IOR," said
a senior Vatican official, a prelate who had years of experience
of directly dealing with the bank. The future of the IOR was one
of main issues Francis would have to confront now that the
whirlwind of his surprise election was slowing, he said.

Any significant reforms of the IOR would not come for some
time and would probably be made after changes at the Secretariat
of State, the central Church department which was at the centre
of a "Vatileaks" scandal that rocked the Holy See last year.

These changes would include the replacement of its head,
Cardinal Tarciscio Bertone, who is number two in the Vatican
hierarchy and has widely been blamed for failing to prevent the
many mishaps and infighting in Church government during the
eight-year pontificate of Pope Benedict.

"It will take time (to change the bank)," said another
Vatican official who is not a prelate. Both officials spoke on
condition of anonymity.

The second official believed it was more likely that the
bank, which manages money for the Vatican, international
Catholic religious institutions and orders of priests and nuns,
would undergo "serious restructuring" rather than being closed.

"But I would not exclude anything, including closing it down
the line. Francis is doing surprising things every day," he
said.

Both officials said the new pope might, as a first step, set
up a committee to advise him on possible changes to the
Vatican's financial structure.

The first sign of change would be a new secretary of state.
"It's not a question of if but when Bertone leaves," the senior
prelate said. "It remains to be seen who the pope chooses as new
secretary of state."

CRISIS IN THE CURIA

The basic failings of the Curia, as the Vatican's central
administration is known, were aired, sometimes passionately, at
closed-door meetings of cardinals before they retired into the
conclave that elected Francis on March 13.

"The Curia did not come out smelling like a rose from those
meetings," the senior prelate said, adding that many cardinals
had demanded explanations of the scandals and information on how
the bank is run and whether it should exist at all.

"The IOR is not an essential part of the ministry of the
Holy Father as a successor of St. Peter," Cardinal John
Onaiyekan of Nigeria told an Italian television station before
the election of Francis. "The IOR is not fundamental, it is not
sacramental, it is not part of (Church) dogma."

Anger at the Italian prelates who mostly run the Curia was
one of the reasons that the cardinals chose the first
non-European pope for 1,300 years at the conclave and quashed
the chances of one of the frontrunners, Milan Archbishop Angelo
Scola.

The next secretary of state, the senior source said, would
have to instil a new style of "collaboration and service" among
offices of the Curia, whose image was badly stained by the
"Vatileaks" scandal.

Before he resigned, Benedict left a secret report for
Francis on the scandal, in which sensitive documents alleging
corruption and conflict over the bank's administration were
stolen from the pope's desk and leaked by his butler.

The butler, Paolo Gabriele, was arrested and sentenced by a
Vatican court to 18 months in prison last year but Benedict
pardoned him and he was freed just before Christmas.

Bertone has been directly linked to the IOR's recent
troubles. He was the chief promoter of Ettore Gotti Tedeschi, an
Italian who headed the bank until last May when its board
unceremoniously ousted him.

Gotti Tedeschi said at the time he was fired because he
wanted the bank to be more transparent but board members said it
was because he had neglected basic management responsibilities
and alienated staff.

In 2010, when Gotti Tedeschi was still at the helm of the
bank, Rome magistrates investigating money laundering froze 23
million euros ($33 million) the IOR held in an Italian bank.

The Vatican said the bank was merely transferring funds
between its own accounts in Italy and Germany. The money was
released in June 2011 but the investigation is continuing.

In February, the Vatican named a German lawyer, Ernst von
Freyberg as new IOR president. But the appointment, made two
weeks before Pope Benedict resigned, was clouded by Freyberg's
past business links to a military shipbuilder.

At the time of appointment, the Vatican said Freyberg would
contribute to the IOR's modernisation and transparency in its
attempts to meet international standards.

BAD IMAGE

"The Vatican Bank or IOR, is not unique. They are not the
worst (bank), but certainly there are very serious problems that
need to be addressed," said E.J. Fagan, advocacy coordinator at
Global Financial Integrity, an organisation that seeks to
curtail illicit money transfers.

"Pope Francis has very clearly stated that he wants to fight
poverty. Money laundering of illicit financial flows is a major
driver of global poverty and the Vatican should set a clear
example," he told Reuters.

The Vatican has been trying to shed its image as a suspect
financial centre since 1982 when Roberto Calvi, an Italian known
as "God's Banker" because of his links to the Holy See, was
found hanged under London's Blackfriars Bridge.

Moneyval, a monitoring committee of the 47-nation Council of
Europe, said last July that the Vatican had failed to meet all
its standards on fighting illicit cash flows, tax evasion and
other financial crimes.

A report by Moneyval gave the Vatican an overall pass grade
but failing grades on 7 of 16 "key and core" aspects of its
financial dealings. It found major failings in the running of
the bank, while acknowledging that the IOR was making changes to
meet transparency requirements.

Five months before the Moneyval report, JP Morgan Chase
closed the IOR's account with the Milan branch of the U.S.
banking giant because of concerns about insufficient
transparency.

Italian media have reported that the bank, which currently
answers to a commission of cardinals and enjoys great autonomy,
could be placed under the control of another Vatican department,
increasing the oversight called for in the Moneyval report.

Famiglia Cristiana, Italy's leading Catholic weekly, called
for the IOR funds to be administered by an independent "ethical
bank" external to the Vatican.

"Total transparency would assure the faithful, who are
continuing to offer generously, that the money they give to the
Church, after the part used to guarantee the good running of the
Church itself, would be destined primarily for the world's
poor," the highly influential magazine said.

John Allen, author of several books on the Vatican and
correspondent for the National Catholic Reporter, said there was
talk among cardinals at the pre-conclave meetings "that the
Vatican does not need its own bank, and getting rid of it would
eliminate a perennial source of speculation and conspiracy
theories".

Much of the estimated $7 billion managed by the bank, which
was set up in 1942, belongs not to the Vatican but to religious
orders and dioceses, who use it to transfer funds around the
world.

Another option for the bank's future would be to scale it
down so it manages only funds needed to keep the Vatican
running, drastically reducing the number of outside accounts and
making it less vulnerable to possible abuse.

"We could just say to the Jesuits, the Dominicans, the
Franciscans: 'Sirs, you will have to take your business
elsewhere'," the senior prelate said.

However, part of bank's profits have helped the Holy See
balance its budget in the past, making up for deficits running
into tens of millions of dollars.

This means that if the bank were to be phased out or closed,
other sources of income would have to be found to fill the gap,
the senior prelate said.

The Holy See would probably be careful, however, before
relinquishing too much financial autonomy to outsiders so as to
maintain its flexibility in emergency situations.

For example, before the fall of the Berlin Wall in 1989, the
bank was able to move money to countries in the former Soviet
bloc to keep Catholic Churches alive there in the face of
communist repression.
(Additional reporting by Lisa Jucca in Milan; editing by Barry
Moody and David Stamp)

Trending Stories

Sponsored Topics

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: